What is Cyclical stocks?

A cyclical stock is an equity security whose price is influenced by ups and downs in the overall economy.

Description:
Cyclical stocks are typically related to companies that delivers discretionary items which consumers can afford to buy mostly within an economic boom and cut back on during a recession.

Classification of cyclical stocks:
Consumer cyclical stocks can be further classified into durables, non-durables and services:
• Durable goods: Manufacturers produce and/or becomes distributor of physical goods having a predictable life of greater than three years.
• Non-durable goods: Manufacturers produce or distribute soft goods containing expected lifespan of less than three years.
• Services: covers a separate category of cyclical stocks, because these companies don’t manufacture or distribute physical goods.

Cyclical stocks are often considered as more volatile as compared to non-cyclical or defensive stocks, that seems to be more constant during periods of economic turndown. But, the stocks carry greater profit potential & chances of growth, as they have the ability to outperform the market throughout the periods of economic potency.